95 of 99 people found the following review helpful
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Wolfgang Streeck is a German economic sociologist, and Emeritus Director of the Max Planck Institute for the Study of Societies. Streeck contends that today's capitalism is plagued by five ultimately potentially fatal problems: declining growth, oligarch, short-changing the public sphere, corruption and international anarchy - for which no political arm/process exists to confront them. A central problem of capitalism is that insecure workers (kept that way to make them obedient workers) must also be confident consumers.
Per Streeck, the 2008 'Great Recession' was the latest in a long sequence of political and economic disorders that began with the end of postwar prosperity in the mid-1970s. Successive crises have proven ever more severe. Global inflation in the 1970s was followed by rising public debt in the 1980s, and fiscal consolidation in the 1990s accompanied by a steep increase in private-sector indebtedness.
Streeck also identifies three long-term trends in first industrialized, now increasingly deindustrialized capitalist countries. The first is a steady decline in the rate of economic growth, the second is an equally persistent rise in overall (governments, private citizens, financial and non-financial firms) indebtedness in those same states, and the third is ascending income and wealth inequality.
Streeck fears these three trends may be mutually reinforcing. Inequality impedes improvements in productivity and weakens demand, low growth reinforces inequality by intensifying distributional conflict as concessions to the poor become more costly, and rising debt compounds inequality caused by stagnant wages and reductions in public services. Despite innumerable demands and blueprints for 'reform' to prevent recurrence, little has changed. Governments (especially in the U.S.) have firmly remained in the grip of the money-making industries - while they in turn continue to be showered with cheap cash created by central banks. Yet, unprecedented liquidity has failed to jumpstart the economy, and inequality marches upwards - what little growth there is appropriated by the top 1%.
Several attempts were made in 2013 to reign in monetary expansion, both in Japan and the U.S., but when stock prices plunged, 'tapering' (as it was caused) was postponed. Central bank balance sheets were then at about 3X pre-crisis levels, and rising. Continued low interest rates etc. made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy to delay needed reforms.
Capitalism and democracy has long been considered adversaries, until the postwar seemed to have reconciled the two. Owners of capital had feared democratic majorities abolishing private property, while workers and their groups expected capitalists to finance a return to authoritarian rule in defense of their privileges. These fears were alleviated for awhile. Today, doubts about the compatibility of capitalism with democracy have returned. Among the ordinary people, there is now a pervasive sense that politics can no longer make a difference - perceptions of deadlock, incompetence and corruption among what seems to be an increasingly self-contained and self-serving political class, manifested by declining electoral turnout.
At the same time, government debt has risen while participation rates have fallen, tax revenues as a percentage of GDP have risen, and top marginal income tax rates have declined. Institutional protection of the market economy from democratic interference has advance greatly - trade unions are on the decline everywhere, economic policy widely turned over to democratically unaccountable central banks - concerned above all with the health of goodwill of financial markets, and in Europe, national economic policies, including wage-setting and budget-making, are increasingly government by super-national agencies like the European Commission and Central Bank, also beyond the reach of popular democracy. (Likewise, TPP.) Elites are also losing faith in democratic government and its ability to reshape societies in line with market imperatives - countries like China are complimented for authoritarian political systems being so much better equipped than majoritarian democracy to deal with the challenges of globalization. Elite pressures for economic neutralization of egalitarian democracy takes the form of continuing relocation of political-economic decision-making to supranational institutions such as the European Central Bank and summits of government leaders.
Both radical critics of capitalism (Marx, Polanyi) and bourgeois theorists such as Weber, Schumpeter, and Keynes have predicted its impending end. For a long time, political protests are likely to remain local, dispersed, uncoordinated.
Global mobility enables employers to replace unwilling local workers with willing immigrant ones.
The conspicuous failure of even negative real interest rates to revive investment coincided with a long-term failure to even negative real interest rates to revive investment coincided with a long-term increase in inequality. They may be one of the causes of the financialization of capitalism that began in the 1980s. This does not preclude high profits in the financial sector, essentially from speculative trading with cheap money supplied by central banks. Money generated to prevent stagnation from turning into deflation causes inflation. The only inflation in sight now is that of asset-price bubbles.
Low growth in the future does not provide additional resources with which to settle distributional conflicts and pacify discontent. Easy money provided by central banks to restore growth adds to inequality - inviting speculative rather than productive investment. Plutonomic capitalists no longer have to worry about national economic growth because their transnational fortunes grow without it - hence the exit of the superrich from Russia and Greece.
Finance is an 'industry' where innovation is hard to distinguish from rule-bending or rule-breaking, where payoffs between firms and regulatory authorities is extreme, where revolving doors between the two offer unending possibilities for corruption, where the largest firms are not just too big to fail but also too big to jail - given their importance for national economic policy and tax revenue. Nobody believes anymore in a moral revival of capitalism.
The dollar's function as international reserve currency is now contested - and it cannot be otherwise, given the rising levels of public and private debt, and several highly destructive financial crises. The U.S. has been either defeated or deadlocked in three major land wars since the 1970s.
The end of capitalism can be imagined as a death from a thousand cuts, all at the same time.
7 of 7 people found the following review helpful
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Comfortably the most provocative thing about this book is its title.
Away from that, this collection of twelve essays on the decline of the market economy is very sober and sedate. It’s certainly no call to arms! Neither its content nor its style relate in any way to the sundry cod-revolutionaries who endorse it on the cover; Streeck, a serious sociologist, is nothing like them!
His answer to the question he asks on the cover of the book can be summarized in a rather apologetic “we don’t know for sure that capitalism will end, we just know it’s in trouble.”
He does not foresee a new world order and he does not propose an alternative system. He merely predicts that the current struggle between what he calls “democracy” and “market forces” will remain unresolved, leading to permanent instability and unpredictability, with all that entails.
The basic assumption in the background of the book, never fully articulated (the best effort to do so is in Chapter 8), is that the capitalism system as we know it (the kind that 1. helps us best to decide where to allocate our marginal resources and the kind where 2. democracy and market forces have worked in relative harmony) is a special type of system that can only thrive if it is hosted and supported by strong institutions, including a government that sets and enforces basic rules and regulations regarding what it is we’re allowed to own, whether we’re allowed to transfer ownership, how much market power businesses are allowed to exercise, what happens if we fail to stick to our side of a bargain etc. etc. This not being a naturally-occurring system, its institutions need continuous support from society, and the support has (perversely) often come via the resolution of internal or even external conflict. Conflict that has certainly been absent since the “end of history” in 1989, for example.
In the author’s own words, capitalism “was always a fragile and improbable order and for its survival depended on ongoing repair work. Today, too many frailties have become simultaneously acute while too many remedies have been exhausted or destroyed. The end of capitalism can then be imagined as a death from a thousand cuts.” (p. 13) He goes on to state the main theme of his book as follows: “For the decline of capitalism to continue, no revolutionary alternative is required, and certainly no masterplan of a better society displacing capitalism.” (p. 14) Between now and the “end of capitalism” Streeck basically predicts a Dantean purgatory: “A society in interregnum would be a de-institutionalized or under-institutionalized society.” (p.14)
The most dire prediction you will find here is that “the social world of the post-capital interregnum, in the wake of the neoliberal capitalism having cleared away states, governments, borders, trade unions and other moderating forces, can at any time be hit by disaster.” (p. 14)
My favorite essay is not the one that gives the book its title. Comfortably the most lucid piece here is chapter 9, “How to Study Contemporary Capitalism.” It is in this well-considered chapter that the author best summarizes his (perforce, in a collection of essays, oft-repeated) narrative that takes us from the apogee of the system around 1970 to its near-death experience in 2008:
“After the end of post-war growth, governments in the ‘free world’ avoided conflicts with strong trade unions over wage increases and unemployment by allowing for high rates of inflation. Inflation, much like credit, served to pull forward in time as yet non-existing resources, enabling employers and workers to realize in nominal money terms claims whose sum total was in excess of what was in fact available for distribution. While workers believed they were achieving what they perceived to be their moral-economic right to a steadily rising living standard combined with secure employment in their present jobs, employers were able to reap profits in line with expectations of a proper return as established in the decades of post-war reconstruction. As inflation continued, however, it devalued accumulated savings and increasingly distorted price relations. Its conquest in the early 1980s, in the course of the ‘Volcker revolution, did not bring stability, however. Instead, it ushered in a period of rising government debt as electoral politics substituted for collective bargaining as the political-economic mechanism of the time for mobilizing surplus resources to pacify otherwise disruptive distributional conflict. When this, too, became unsustainable in the 1990s, consolidation of public finances could be undertaken only by giving households access to deregulated private credit, allowing them to compensate for stagnant incomes and rising inequality by borrowing on their own account.” (pp. 214 – 215)
The essays in the book take turns in looking at the events of this period through a number of the favorite “lenses” of socialist theory.
Chapter 3, for example, expounds the well-worn theory that for the longest time Soviet communism and American capitalism were busy delivering pretty much identical outcomes to their citizens. It was allegedly only at the point where every Russian household and every American household alike were equipped with (for example) a washing machine that the outcomes bifurcated. Capitalism at that point stopped fulfilling “needs” and moved on to “wants” and became a mechanism to create new consumerist “wants” for its citizens who would not have felt the urge to buy these goods and services if they had not been prodded to do so.
With only 2% of the US workforce working in agriculture today managing to not only feed the entire US population, but also rendering the US the largest food exporter on earth, I think the argument is stale. Pakistan has 70% of its population working in agriculture and my home country of Greece is at the geometric mean of the two at 12% and I’ll tell you people are applying for green cards from both (and both countries, unlike the US, are net importers of food too!) The fact that the US has 98% of its workforce to spare after it’s grown its food does not strike me as a failure. Neither do I think the work they do is inferior in interest to that performed by the guys who work at Monsanto or the sundry mercantile exchanges, to say nothing of the 0.6% of the US population that actually gets dirt under its fingernails. The argument extends even better in my view to manufacturing, Donald Trump’s (and presumably Wolfgang Streeck’s) objections notwithstanding.
Similarly, the book laments the fact that women have been forced to join the workforce (allegedly so the family unit can keep spending –the author refuses to acknowledge that they may get positive utility from working) and even hints that people today are acquiring education as a means to an end (spending) rather than because they want to. All a matter of opinion, of course, but mine differs rather vehemently form Wolfgang Streeck’s. I did a math degree at the age of 31-33 and God knows I had nowhere to go with it. I just loved doing it. I’m 100% sure I was not alone and 99% sure I’ll never use the stuff I learned and have already forgotten. It was consumption, alright, but my brain was doing the consuming and I had a ball.
There is a collection of chapters (four in total) that concern themselves with the situation in Europe. The European bureaucracy, chief among its institutions the ECB, is correctly identified as the ersatz European government and is accused of putting the interests of capital ahead of the interests of the citizens.
The author is exactly correct to say that the European institutions tend to identify more with the lender (typically a northern European bank or pension fund) than with the borrower (typically a Mediterranean government). He is equally correct to identify that democratic process was suspended when the elected governments of both Italy and Greece were supplanted by banking-friendly technocrats.
He fails, however, to observe that when push came to shove, the ECB used all its authoritarian independence not to enforce rules, but to pander to the sundry borrowers. It did so, moreover, in a manner no sovereign government could ever hope to emulate. For all of Wolfgang Streeck’s protestations, the institutions he decries (perhaps in self-preservation) have printed trillions of EUR, precisely to allow the struggle between “democracy” and “market forces” to remain unresolved. That’s what “kicking the can down the road” has been all about, and it’s the most august of institutions to whom this has been delegated.
The role of the objectionable institutions at the center of Europe has thus been dual:
1. First, a mechanism for sovereign EU governments to avoid political accountability to the individual electorates when passing tough measures, a way indeed to bypass the democratic process.
2. Second, a mechanism for sovereign EU governments to avoid political accountability to the individual electorates when letting off the hook those who cannot pay. Germany would never have bought Italian bonds. Along the same lines, the UK would never have sent money to Ireland, much as that was necessary to end the era of IRA terrorism. All that money has been channeled through the institutions of the EU.
The failures of the ECB have in my view not come from its mandate or from its attitude to state borrowers. The ECB has actually failed in a much more fundamental role, that of keeping its eye on the banking system: it let German and Dutch banks gorge on both US subprime and Mediterranean govvies, while allowing the Spanish and Italian banking system to take full advantage of the “exorbitant privilege” to create EUR.
In what has to be the most unsung string of financial crimes in history, we ended up with Spanish owners for companies as diverse as Hochtief, all of the UK’s civilian airports, the Argentinian phone company etc. etc. all while the Spanish banking system defaulted on hundreds of thousands of depositors whom it duped into buying its subordinate debt. Similarly, Michele Ferrero (purveyor of fine chocolates to the ambassador’s reception) died in Monte Carlo and the Agnellis have moved their partying to New York and their holding company well clear of Italy, all while the Italian banking system is dying under a mountain of loans that will never be repaid and derivatives deals that nobody ever questioned. That’s what Streeck ought to be complaining about in my view. Not about authority that was never really used, other than to help kick the can down the road.
But enough about that. A truly fantastic chapter (chapter 8) follows, which laments the displacement of the discourse that has taken place in our democratic societies:
You cannot but agree with Streeck that, rather than seek to address THE basic issue, which has to be redistribution, the “progressive” side in politics has abdicated its responsibility and prefers to talk about non-issues: “Culture wars, ‘family values,’ lifestyle choices, ‘political correctness,’ the age and sex of politicians, and the way they dress and look and speak deliver an unending supply of opportunities for pseudo-participation in pseudo-debates, never allowing for boredom to arise: whether the foreign minister should or should not have his male companion accompany him to a state visit to the Middle East; if there are enough women cabinet members, and in sufficiently powerful positions; how female ministers attend to their small children, too little or too much; whether the president of the Republic should use a motor cycle when visiting his lover; and how often the minister of economic affairs takes his daughter to Kindergarten in the morning.” (p. 189)
This, of course, mirrors the way the Democratic party in the US has refused since 1976 to engage in anything resembling redistribution, has refused to contain the market power of emerging monopolies from IBM through to Microsoft and onto Google and Uber, has allowed (alone with New Zealand among advanced countries) big pharma to advertise on TV, came down in favor of Angelo Mozilo and “sanctity of contract” rather than the evicted subprime borrower, all while of course espousing Romneycare, pretending to shut down Guantanamo, pretending that sticking “record fines” on people like Steve Cohen is comparable to how we treated Boesky and Milken three decades ago, trying and failing to sign the odd treaty on non-proliferation, paying lip service to global warming, making nice with Fidel Castro and more recently espousing separate toilets for transsexuals and shouting “Putin” whenever it feels it’s been cornered on the issues.
The less-developed theme in the book, still present in quite a few of the essays, is the idea that in the course of the past forty years capitalists have gathered enough power to work around the restrictions imposed by the state, but that this has actually served to threaten capitalism, because it has led to excesses that are provoking an angry reaction to the status quo.
In my view that’s a pity, because if there is a threat to Capitalism that’s precisely from where it comes:
Streeck has the pieces, but he fails to put them together, basically. The American more so than the Western European, is first and foremost a consumer, and he’s been getting killed:
1. The crisis of 2008 has thrown in the microwave oven the hitherto slow process from “perfect competition” to “oligopoly” in so many markets (example: two companies sell baby formula in the US, only one sells chewing gum, your cable TV typically comes from one source and the two biggest mattress companies have merged) that the supply curve on tons of products and services has wildly curved upwards, squeezing output downward and price upward, not only causing the sluggish growth the economy has been experiencing (including to the market for good jobs), but also keeping prices elevated in the face of crappy demand.
2. Just as this phenomenon is starting to consolidate (it had a one-time effect on the speed of growth and had a permanent one-time effect on inequality), another very sinister effect is taking hold: a large number of markets that used to clear at a single price for everybody is with the help of the Internet converting business model to perfect market segmentation. Think of how you don’t dare go back to a website and reprice plane tickets because the engine knows you just asked for that ticket, for example. Market segmentation allows for perfect price differentiation, which converts the whole of the consumer surplus into economic rent for the seller.
The shift of power from the consumer (the customer who used to be “king”) to the producer has not gone un-noticed. The American people did not vote in their first black president, a man promising to deliver “change,” because they were pining for a Harvard-educated member of the establishment who’d go on to sell his White House memoirs for 60 million dollars.
They firmly believed they were voting in a Hugo Chavez. An Andreas Papandreou. Somebody who might cost them, but would cost the emerging plutocracy even more.
The very same public that once simultaneously voted in Clinton, Blair and Schroeder (all of them "third-way" social liberals / nouveaux fiscal conservatives) to protect its newly-acquired middle-class savings from the idle recipients of welfare, the very same public that once hung by Greenspan’s every word, because he was the man to preserve those savings and protect them from the ravages of the market, has discovered that the powers-that-be have taken the mandate it gave to them to such an extreme that now it finds itself unable to hand over to its children the same status it was accorded by its parents.
And that is the biggest threat to capitalism.
The public is mad and second time round it’s taken no chances. The crazier the politician, the more insane he sounds, the likelier to bring down the temple, the better. We’ll deal with the consequences later!
Where does that leave us with Streeck’s opus? Well, it kept me good company, it taught me some stuff and it sure made me think. So I’ll round up its 3.5 stars to four, much as I disagree with most of what the author has to say. Also, it’s fantastic to hear from a socialist who is not shouting from the rooftops.